Analysts: Retail sector on pace for most layoffs since 2010
- Retail sector layoffs are projected to eclipse 37,000 by the end of 2016, their highest total since retailers laid off 30,273 employees in 2010, financial services firm Credit Suisse said in a note published Monday, per MarketWatch.
- Retailers have already cut more than 24,000 jobs during the first four months of 2016. While roughly two-thirds of layoffs tend to come in the first third of a given calendar year, Credit Suisse analysts said total 2016 layoffs could still climb much higher due to the number of retailers filing for bankruptcy in recent weeks.
- “Most of the layoffs announced year to date are at the store associate level, as a result of retailers closing unproductive stores to ‘right size’ their brick-and-mortar footprint, or as a result of retailers attempting to reduce the number of employees per store,” Credit Suisse wrote.
Faced with slowing store sales, increasing e-commerce traffic and mounting pressure from investors, retailers are slashing headcounts: Merchants including Macy's, Nordstrom, Bebe and Avon all announced job cuts during the first quarter of 2016.
Credit Suisse said the layoffs are “typical during a cyclical downturn,” noting they represent “an attempt to deal with the decline in brick-and-mortar productivity, as brick-and-mortar sales are lost to e-commerce while store expenses grow due to increasing wages. With so much of these companies’ total expenses related to labor, there are few other levers for retailers to pull in order to reduce their cost base.”
The immediate future doesn’t look much brighter. Sports Authority, Pacific Sunwear and Sport Chalet have filed for Chapter 11 bankruptcy protection since the year began, Aeropostale is reportedly considering a restructuring or sale, and just last week, Sears Holdings Corp. announced plans to close 68 Kmart and 10 Sears stores nationwide this summer.
Real estate research firm Green Street Advisors contends that department stores still must close hundreds of additional locations in order to recapture the level of productivity they enjoyed a decade ago. According to Green Street data cited by the Wall Street Journal, department stores generated an average of $165 sales per square foot of brick-and-mortar property in 2015, a decline of 24% from a decade ago, while overall square footage increased by 7% during the same timeframe.
The question is, how many more store associates can retailers lose before the brick-and-mortar shopping experience reaches a breaking point? Some experts believe that’s already happened: Investment banking company Evercore Partners on Friday reduced its Nordstrom price target from $50 to $40, saying the retailer has strayed too far from signatures like customer service and upscale merchandise curation to focus on its off-price Rack stores and e-commerce operations.
The Evercore downgrade followed just days after Nordstrom co-President Blake Nordstrom took pains to stress that the retailer’s latest round of layoffs would not impact in-store employees or the company’s reputation for top-notch customer care.
"We will never change our commitment to serving customers, but recognize how they want to be served has been changing at an increasingly rapid pace," Nordstrom said. "Meeting our customers' expectations means we must continually evolve with them. We see opportunities to create a more efficient and agile organization that ensures we're best positioned to achieve our goals."
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